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Types of Mortgage Lenders
Mortgage Bankers
Mortgage Bankers are lenders that are large enough to originate loans and create
pools of loans which they sell directly to Fannie Mae, Freddie Mac, Ginnie Mae,
jumbo loan investors, and others. Any company that does this is considered to be
a mortgage banker.
Some companies don't sell directly to those major investors, but sell their
loans to the mortgage bankers. They often refer to themselves as mortgage
bankers as well. Since they are actually engaging in the selling of loans, there
is some justification for using this label. The point is that you cannot
reliably determine the size or strength of a particular lender based on whether
or not they identify themselves as a mortgage banker.
Portfolio lenders
An institution which is lending their own money and originating loans for itself
is called a "portfolio lender." This is because they are lending for their own
portfolio of loans and not worried about being able to immediately sell them on
the secondary market. Because of this, they don't have to obey Fannie/Freddie
guidelines and can create their own rules for determining credit worthiness. .
Usually these institutions are larger banks and savings & loans.
Quite often only a portion of their loan programs are "portfolio" product. If
they are offering fixed rate loans or government loans, they are certainly
engaging in mortgage banking as well as portfolio lending.
Once a borrower has made the payments on a portfolio loan for over a year
without any late payments, the loan is considered to be "seasoned." Once a loan
has a track history of timely payments it becomes marketable, even if it does
not meet Freddie/Fannie guidelines.
Selling these "seasoned" loans frees up more money for the "portfolio" lender to
make more loans. If they are sold, they are packaged into pools and sold on the
secondary market. You will probably not even realize your loan is sold because,
quite likely, you will still make your loan payments to the same lender, which
has now become your "servicer."
Direct Lenders
Lenders are considered to be direct lenders if they fund their own loans. A
"direct lender" can range anywhere from the biggest lender to a very tiny one.
Banks and savings & loans obviously have deposits they can use to fund loans
with, but they usually use "warehouse lines of credit" from which they draw the
money to fund the loans. Smaller institutions also have warehouse lines of
credit from which they draw money to fund loans.
Direct lenders usually fit into the category of mortgage bankers or portfolio
lenders, but not always.
One way you used to be able to distinguish a direct lender was from the fact
that the loan documents were drawn up in their name, but this is no longer the
case. Even the tiniest mortgage broker can make arrangements to fund loans in
their own name nowadays.
Correspondents
Correspondent is usually a term that refers to a company which originates and
closes home loans in their own name, then sells them individually to a larger
lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling
the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool.
The correspondent may fund the loans themselves or funding may take place from
the larger company. Either way, the loan is usually underwritten by the sponsor.
It is almost like being a mortgage broker, except that there is usually a very
strong relationship between the correspondent and their sponsor.
Mortgage Brokers
Mortgage Brokers are companies that originate loans with the intention of
brokering them to lending institutions. A broker has established relationships
with these companies. Underwriting and funding takes place at the larger
institutions. Many mortgage brokers are also correspondents.
Mortgage brokers deal with lending institutions that have a wholesale loan
department.
Wholesale Lenders
Most mortgage bankers and portfolio lenders also act as wholesale lenders,
catering to mortgage brokers for loan origination. Some wholesale lenders do not
even have their own retail branches, relying solely on mortgage brokers for
their loans.
These wholesale divisions offer loans to mortgage brokers at a lower cost than
their retail branches offer them to the general public. The mortgage broker then
adds on his fee. The result for the borrower is that the loan costs about the
same as if he obtained a loan directly from a retail branch of the wholesale
lender.
Banks and Savings & Loans - Banks and savings & loans usually operate as
portfolio lenders, mortgage bankers, or some combination of both.
Credit Unions - Credit Unions usually seem to operate as correspondents,
although a large one could act as a portfolio lender or a mortgage banker.
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